Monday, April 16, 2012

Are Iran And Syria Buying Up American Dollars In Iraq To Get Around Sanctions?

There has been a recent run on the value of Iraq’s currency the dinar. It is dropping in worth vis-à-vis the U.S. dollar. That’s because there have been huge exchanges of dinars for dollars in the last few months causing the latter to fall. Rather than being caused by a normal series of events Iraq is being hit by a series of counterfeiters, money launderers, and scams, some of which are connected to the governments of Syria and Iran.

Reports of huge dollar exchanges going on in Iraq started at the beginning of the year. By April 2012, the economic committee in parliament warned that foreign countries were pumping in counterfeit dinars into the country. A report by the Global Center for Development Studies in England said that gangs were operating in Iraq exchanging fake dinars for dollars. In February, there was a story that currency traders in Iraq were no longer taking 10,000 dinar notes after a rumor spread that there were fakes in circulation. A government source told the Kurdish on-line paper AK News that Iran had flooded the market with 7 billion dinars worth of fake 10,000 notes. There were also stories of money launderers buying up dollars, and a huge money scam in Sulaymaniya. In the latter instance, dozens of money exchangers in Sulaymaniya province set up a partnership with like-minded businesses in Iran. The Iranians scammed the Kurds out of an estimated $500 million, which now resides in Iranian banks. Since the start of 2012 more and more of these reports are emerging in Iraq. Even if some of them are rumors it is causing widespread speculation by Iraqi money exchangers, and concern by bankers. The reason why Iran and Syria have been connected to most of these reports is because the international community is sanctioning them. The Iranian rial for instance, has collapsed as a result, and both countries are struggling to get foreign currency. Deprived of the usual means to acquire such monies, they are turning to illegal methods to gain it by going to Iraq.

The amount of dollars being traded in Iraq is skyrocketing as a result. The governor of the Central Bank of Iraq said that there had been a 40-50% increase in demand for dollars since the beginning of the year. In 2011, there was an average of $160 million worth of dollars being traded a day in Iraq. By December that had gone up to $200-$300 million a day, rising even more to $400-$450 million a day in March 2012. That has caused the value of the dinar to deteriorate. Last year, one U.S. dollar was worth 1,120 dinars. In April 2012, a dollar could buy 1,250 dinars. This is having two major affects. One is that there is some fear that the country’s hard currency reserves may be drained if these amounts keep up. The Central Bank of Iraq has tried to calm things by announcing that it has $62 billion in savings, which officials claim is more than enough to survive the current wave of trading for dollars. With the country bringing in billions of dollars a month from oil exports this is likely true. The other is a worry that inflation may hit the country. Prices are said to be fluctuating already, because of the fall in the value of the dinar. While the government seems like it can handle the run on dollars, the general public may suffer the unintended consequences.

The huge increase in American currency flowing out of the country has forced the Central Bank of Iraq to step in. They have tried to limit the amount of dinars in circulation, and set up new rules to demand full disclosure of those buying dollars in an attempt to discourage any gangs, foreigners, or front companies. The problem is there is no guarantee that these rules will be followed. Already, there are stories of money exchangers in Baghdad going to the black market to get dollars for instance. If the problems persist, the Bank may have to go to more drastic measures such as limiting how many dollars it will offer each day.

Who is behind all the buying of dollars in Iraq is not clear yet, but it is undeniably happening at a greater and greater rate each month. Iraqi money exchangers and the public are feeling the affects, which has drawn in the authorities. Their responses seem mild at best so far, and the run on dollars has not abated. There are probably various legal and illegal groups involved, and some of them are connected to Iran and Syria. Sanctions are beginning to cut into their economies, and Iraq offers an easy way out of some of their problems by offering up huge amounts of dollars each day. The two countries can then buy goods that they otherwise couldn’t, because they are not bringing in their usual revenues with the embargos they are facing. The Iraqi government will likely have to get more involved in the matter, but the problem is the weak rule of law and institutions may prevent any serious policy from taking affect, meaning that Iraq will continue to be an important escape route for its two neighbors to get out of their situations.


Al-Ansary, Khalid and Razzouk, Nayla, “Iraq Deplores ‘Currency Attack’ as Dollars Flow to Syria, Iran,” Bloomberg, 1/12/12

Harissi, Mohamad Ali, “Iraqi dinar casualty of Iran, Syria sanctions,” Agence France Presse, 4/12/12

Al-Jabbouri, Mahmoud, “Counterfeit currency threatens Diyala and the nation,” AK News, 2/21/12

Khallat, Khudr, “Battle against counterfeit gangs before change in currency,” AK News, 4/9/12

Mahmoud, Nawzad, “Millions of Dollars Swindled Out of Kurdish Businessmen,” Rudaw, 2/25/12

Peel, Michael, “Iraq bank moves to allay laundering fears,” Financial Times, 4/2/12

Saleh, Khayoun, “Iraq hard cash reserves exceed $60 billion,” Azzaman, 4/10/12

Al-Summary, Yazn, “Counterfeit currency is leaving traders and customers out of pocket,” AK News, 2/22/12

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